4 Things I Look for in a Startup Founder
Exponential Creativity Ventures backs seed stage and pre-seed tech startups that are enhancing or expanding human creative capacity. Compared to other institutional investors, that means we’re contributing capital and other resources extremely early in the startup lifecycle.
Some specific challenges come with being a very early investor. One of the biggest is that there’s often little or no data on company performance. Many of these companies are either pre-revenue or have just started to recruit their first customers. The old standby business school metrics like revenue growth or return on assets are either unavailable or so new and thin that they must be taken with handfuls of salt. Compared to later stage investors, therefore, we have to lean heavily on subjective analysis. In that light, perhaps the most important consideration is the strength of the CEO and her team.
So, what am I looking for when assessing a founder I’ve just met? Here are four factors at the front of my mind.
1. An Internal Locus of Control (Especially With the Bad Stuff)
This is a heuristic that I used to use when hiring senior managers, but it’s equally relevant when assessing a founder. As described by Stanford psychologist Philip Zimbardo:
A locus of control orientation is a belief about whether the outcomes of our actions are contingent on what we do (internal control orientation) or on events outside our personal control (external control orientation).
When things go wrong (and things always go wrong), is it because of external forces like a market crash or an incompetent boss? Or, is it because of something you did (or failed to do) that could have contributed to a different outcome?
Here’s the thing: External forces are real and often the true primary factors behind life’s failures and setbacks. As a practical matter, however, that’s irrelevant, because — by definition — you have no influence over those forces! Even if your own behavior and choices played a minimal role in a particular outcome, those are the only things you can change, so you might as well focus your attention there.
I will often ask founders about things that have gone wrong, either with their current company or at some other point in their careers. When they respond with eloquent, thoughtful, persuasive arguments about how some other guy screwed up or how the market collapsed at the worst possible moment, I run fast in the opposite direction. Because even if their explanation is accurate, it’s not actionable. I would much rather hear someone say, “Well, X, Y, and Z happened that made things really difficult, but looking back I could have done A, B, or C, which may have led to a better outcome.” That tells me that you’re thoughtful, self-aware, and well-positioned to navigate similar setbacks in the future.
You’ll notice that I’ve only been addressing failures and not successes. That’s because an internal locus of control is less clearly advantageous when assessing the reasons something went right. Yes, it’s important to understand what you did well so that you can do it again. But it’s equally important to understand how your environment contributed to that success so that you can put yourself in similar positions in the future.
2. Scrappy Hustle Over Corporate Pedigree
So you were the Executive Vice President at a Fortune 100 company in charge of marketing and sales for all of Latin America and Southeast Asia? That’s legitimately impressive! But it’s also a red flag.
When I see a resume packed with senior management experience at blue-chip companies, it suggests three things. First, that you have the skills and competence to navigate and thrive in large bureaucracies. Second, that you’re probably a skilled delegator who knows how to manage and deploy large teams. Third, that you’re likely totally unprepared for life as the CEO of an early-stage startup.
Making things happen at a big corporation relies on marshaling resources — both financial and human. By contrast, the essential task of an early-stage startup is to make things happen with little to no resources. These require very different personalities and skill sets, and it’s rare to find them both in the same individual.
This is one reason I love working with artist founders. Artists are spectacular at “making chicken salad out of chicken shit,” and the best art often emerges from extremely resource-constrained environments.
This talent is highly transferable to the job of a startup CEO. Making something out of nothing — which could almost be a definition of entrepreneurship — requires scrappy creativity, relentless hustle, and a willingness to get your hands dirty at whatever task the day demands.
As a side note, this is also why great founders aren’t always the best people to lead their companies after they’ve reached a certain size and maturity. At some point, the impulse to do everything yourself becomes deeply counterproductive. But that only matters if you make it that far in the first place, which is our primary concern as early-stage investors.
3. Self-Awareness and Intellectual Honesty
This one’s related to the internal locus of control, but it’s a bit broader. The worst thing you can do as a founder is lie to yourself — about how good your product is, how strong your team is, how weak the competition is, or anything else that’s essential to your business.
Apparently, someone out there is advising founders to never say anything negative about their companies when talking to investors. (I’ve heard multiple founders tell me they got this advice.) This leads to ridiculous conversations in which a founder insists that there’s no credible competition when there clearly is or that their product is vastly superior in every way when it clearly isn’t.
Look, I understand spin. It’s appropriate and often essential to frame your business in the best possible light and to tell a positive, inspiring narrative. But when that goes too far, it becomes either dishonest or oblivious—neither of which bodes well for your startup.
I want founders who strike a healthy balance between persuasive optimism and clear-eyed self-awareness. Building a startup is hard. The road is full of potholes and dead-ends. How can you possibly expect to navigate those challenges when you deny they even exist?
4. Coachability and Ego Strength
This, too, is all about balance.
When I challenge your business strategy, how do you respond? Do you get defensive and cockily dismiss my perspective? Alternatively, do you immediately assume that I’m the expert and therefore my opinion must be better than your own?
Neither of these reactions bodes well — either for our potential relationship as investor-and-CEO or for your startup’s success in general. In the first scenario, you’ve basically decided that you’re done learning and will never grow or evolve. In the second, you’re lacking in conviction to a degree that makes you dangerously impressionable and likely to change course daily based on whoever spoke the most in your last meeting.
I’m looking for founders who are confident and passionate about the path they’ve chosen, but not so stubborn or insecure that they’re closed off to new ideas that challenge their thinking. This balance is usually found in people with high ego strength and growth mindsets. CEOs who thread this needle tend to be effective leaders both internally and externally. They also tend to be highly coachable — open to new ideas and critical feedback but not to a degree that makes them fragile or unstable.
Launching a startup can be incredibly rewarding. It’s also brutally difficult. Not everyone is cut out for the grind. As an investor, my job is to figure out whether a given founder has those elusive, intangible qualities that (in my experience) correlate with success. If you’re a founder who fits the bill and your company falls within our investment thesis, then let’s talk.
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